Ebooks and software: Gouge us because you can, until you can’t

The announcement of an enquiry into the Australian pricing of digital goods has given rise to much comment on the interwebs. There’s been a lot of discussion about why prices are higher in Australia which, when you distil it, comes down to one main conclusion: prices are high because the market will bear it. We suffer from high prices because enough of us are prepared to pay them – at least apparently so.

There is an awful virtuous circle at work here. The publishers charge high prices; and thanks to the restrictions on parallel imports we consumers have no legal option to find a lower price. If you’re Australian you’re stuck with the Amazon or Steam Australian price. So at that point there is no competition to send a price signal to the publisher that would lead to them reducing their prices.

Instead, the savy consumer does what they must and finds themselves a free, albeit illegal, alternative. They do that because there is no real choice – you either pay the artificially high price or you find a free illegal alternative. What is missing is the option that should be there in a free-market economy – a competitive environment that allows price-signalling to effectively encourage prices to go down as demand goes up.

The consumer ends up with the ebook or software but the publisher doesn’t know that in any official sense; the publisher sees this only in terms of reduced demand for their product. Being rationalists, and mistakenly viewing the market as local, they then push up their price to extract their pound of flesh from the market. Because we’re a rich country with people who want books, games and software a reasonable proportion of us pay the higher price – a price which the publishers then turn around and try to justify on the basis that the market is small. But still others are pushed into finding a free, rather than a cheaper, alternative. And so the cycle continues; and each time it goes around the price goes up and more people end up circumventing the rules as the publishers fail to read the signals because they haven’t provided a mechanism to give them any signals.

Instead of the publishers pulling on the lever of price, they turn instead to technology and the law. Their response is to try to stop the illegal alternatives by prosecuting people or creating technical restrictions in the form of DRM. Both approaches seem doomed to failure. It’s pretty much impossible these days to create technical restrictions which someone on the Internet wont by-pass in a matter of days. And it’s equally hard to find someone who won’t admit, when pushed, to having read, watched or used an illicit copy of a digital good: it is becoming entirely commonplace. The occasional conviction isn’t doing anything to discourage piracy. And that should come as no surprise because the publishers are giving people no choice – or, perhaps, better put: an unacceptable choice.

The choice is unacceptable when the fundamental issue, higher prices in Australia, cannot be rationally justified. If you’re a savy local burdened with an irrational approach based solely on your location you are going to find a way to deal with it even while gritting your teeth and resenting being forced into such measures. And on the cycle rolls.

As with all cycles, the time must come when the whole thing breaks down. The question is whether that time is now.